Tax Cuts and Jobs Act of 2017 (the "2017 Act")

The Tax Cuts and Jobs Act of 2017 provides relief to nearly all taxpayers by addressing both the estate, gift and generation-skipping tax rules and modifying a number of income tax provisions. 

Beginning on January 1, 2018, the estate, gift and generation-skipping tax law is summarized as follows:

  • The federal gift, estate and generation-skipping transfer tax exemption amounts are increased to $10 million, adjusted annually for inflation after 2011 ($11.18 million for 2018). This increase will sunset in 2026.
  • The gift, estate and generation-skipping transfer tax rate for transfers above the exemption amount will stay the same at 40%.
  • The gift tax annual exclusion increases slightly from $14,000 to $15,000 per year, per donee. Note that inflation caused this increase, not changes resulting from the 2017 Act.
  • The capital gains tax basis of assets acquired from a decedent will continue to be the fair market value of the property at the date of the decedent's death.
  • Estate tax exemption "portability" continues to be an option for surviving spouses. A surviving spouse can elect to take advantage of any unused portion of the estate tax exclusion of his or her predeceased spouse, allowing married couples to effectively shield up to approximately $20.4 million, adjusted for inflation, from estate tax.
  • Kansas continues to have no estate, gift or generation-skipping transfer tax.
  • An individual age 70 ½ or older may roll over up to $100,000 from his or her IRA directly to a qualified charity without incurring any federal income taxes on such funds. If a married taxpayer files a joint return, the spouse is also eligible to contribute up to a $100,000 as a direct transfer to charity.

The favorable federal transfer tax system in 2018 provides an excellent opportunity to reduce future gift, estate and generation-skipping transfer taxes. Nearly all donors will be able to structure their estate plans to completely avoid federal estate, gift and generation-skipping taxes. Making gifts sooner rather than later can reduce future estate tax liability because the asset's post-transfer appreciation will pass to the beneficiary free of estate or gift taxes. 

In addition to the estate, gift and generation-skipping tax provisions, the 2017 Act also addresses numerous income tax provisions and credits. A few of the key changes are as follows:

  • The federal income tax rate for taxes with income in the top tax bracket falls from 39.6% to 37%. The seven-tier tax bracket structure remains, but nearly all amounts and rates are changed. For example, the top tax bracket begins at $500,000 for single filers and $600,000 for married couples filing jointly. Prior to the 2017 Act, the top tax bracket began at $426,700 for single filers and $480,050 for married couples filing jointly.
  • The 2017 Act increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers (compared to $6,500, $9,550, and $13,000 respectively under pre-2017 Act tax law).
  • The 2017 Act retains the charitable contribution deduction, and limits the mortgage interest deduction to the first $750,000 in principal value and limits the state and local tax deduction to a combined $10,000 for income, sales, and property taxes.

As mentioned above, the 2017 Act will automatically expire on January 1, 2026, unless Congress enacts a new tax law. The sunset of the 2017 Act will result in the federal gift, estate and generation-skipping transfer tax exemption amounts returning to pre-2017 Act levels and will also eliminate many, but not all, of the personal income tax changes of the 2017 Act. 

Please note that this summary is intended only as a broad overview of the 2017 Act and donors are encouraged to seek advice from professional advisors regarding their specific tax questions.

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